##### Table of Contents





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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-QSB

x
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2003o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934


For the transition period from 
 to

Commission file number 000-2791



ELECTRIC CITY CORP.

(Exact name of small business issuer as specified in its charter)


Delaware
(State or other jurisdiction of incorporation or organization)
    
    36-4197337
(I.R.S. Employer Identification No.)


1280 Landmeier Road, Elk Grove Village, Illinois 60007-2410
(Address of principal executive offices)(847) 437-1666
(Issuers telephone number)

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days: Yes x No o

34,172,021 shares of the registrants common stock, $.0001 par value per share, were outstanding
as of October 31, 2003.

Transitional Small Business Disclosure Format: Yes o No x



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TABLE OF CONTENTS



|                                    |                                                                                          |                                                                                                          |  |  |  |  |  | 
|----------------------------------- | ---------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION     
|                                    | ITEM 1. Financial Statements                                                            
|                                    |                                                                                          | CONDENSED CONSOLIDATED BALANCE SHEET                                                                    
|                                    |                                                                                          | CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS                                                          
|                                    |                                                                                          | CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002 (UNAUDITED)
|                                    |                                                                                          | STATEMENT OF CONDENSED CONSOLIDATED STOCKHOLDERS EQUITY                                                
|                                    |                                                                                          | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                         
|                                    |                                                                                          | Notes to Financial Statements                                                                           
|                                    | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
|                                    | ITEM 3. Controls and Procedures                                                         
|PART II. OTHER INFORMATION         
|                                    | ITEM 1. Legal Proceedings                                                               
|                                    | ITEM 2. Changes In Securities                                                           
|                                    | ITEM 4. Submission of Matters to a Vote of Security Holders                             
|                                    | ITEM 6. Exhibits And Reports On Form 8-K.                                               
|SIGNATURES                         
|Amended and Restated Mortgage, etc.
|Mortgage Note                      
|Assignment of Leases and Rents     
|Certificate of CEO                 
|Certificate of CFO                 
|Certification of CEO               
|Certification of CFO               



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##### Table of Contents



ELECTRIC CITY CORP.
FORM 10-QSB
For The Quarter Ended September 30, 2003

INDEX

PageNumberPart I
    
    Financial InformationITEM 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets
September 30, 2003 (unaudited) and December 31, 2002
    
    3Condensed Consolidated Statement of Operations
Three Months Ended September 30, 2003 and 2002 (unaudited)
    
    5Condensed Consolidated Statement of Operations
Nine Months Ended September 30, 2003 and 2002 (unaudited)
    
    6Condensed Consolidated Statement of Stockholders Equity
Nine Months Ended September 30, 2003 (unaudited)
    
    7Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2003 and 2002 (unaudited)
    
    8Notes to Condensed Consolidated Financial Statements
    
    9ITEM 2.
    
    Managements Discussion and Analysis of
Financial Condition or Plan of Operations
    
    21ITEM 3.
    
    Control and Procedures
    
    29Part II
    
    Other Information:ITEM 1.
    
    Legal Proceedings
    
    31ITEM 2.
    
    Changes in Securities
    
    31ITEM 4.
    
    Submission of Matters to a Vote of Security Holders
    
    32ITEM 6.
    
    Exhibits and Reports on Form 8-K
    
    34Signatures
    
    36


2



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PART I  FINANCIAL INFORMATION







ITEM 1. Financial Statements







ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET

September 30,2003
    
    December 31,(unaudited)
    
    2002(1)AssetsCurrent AssetsCash and cash equivalents
    
    $
    2,582,969
    
    
    $
    1,555,904Accounts receivable, net
    
    
    1,295,786
    
    
    
    2,681,772Inventories
    
    
    1,254,921
    
    
    
    2,596,218Prepaid expenses and other
    
    
    147,473
    
    
    
    116,210Total Current Assets
    
    
    5,281,149
    
    
    
    6,950,104Net Property and Equipment
    
    
    1,134,225
    
    
    
    1,539,919Deferred Financing Costs
    
    
    682,400
    
    
    
    Cost in Excess of Assets Acquired
    
    
    416,573
    
    
    
    416,573Other Assets
    
    
    
    
    
    
    1,955$
    7,514,347
    
    
    $
    8,908,551


3



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##### Table of Contents



ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED BALANCE SHEET

September 30,2003
    
    December 31,(unaudited)
    
    2002(1)Liabilities and Stockholders EquityCurrent LiabilitiesLine of credit
    
    $
    
    
    
    $
    500,000Current maturities of long-term debt
    
    
    39,086
    
    
    
    148,531Current portion of convertible term loan
    
    
    400,000
    
    
    
    Accounts payable
    
    
    1,034,070
    
    
    
    1,732,719Accrued expenses
    
    
    597,160
    
    
    
    972,584Deferred revenue
    
    
    216,492
    
    
    
    50,000Total Current Liabilities
    
    
    2,286,808
    
    
    
    3,403,834Deferred Revenue
    
    
    241,666
    
    
    
    279,166Long-Term Debt, less current maturities and discounts
    
    
    610,427
    
    
    
    941,260Convertible Term Loan,less current portion, net of unamortized
discount of $343,781 and $0 at September 30, 2003 and December
31, 2002, respectively
    
    
    256,219
    
    
    
    Total Liabilities
    
    
    3,395,120
    
    
    
    4,624,260Stockholders EquityPreferred stock, $.01 par value; 5,000,000 shares authorized
Series A - 2,338,137 and 2,171,192 shares issued
and outstanding as of September 30, 2003 and
December 31, 2002, respectively (liquidation value
of $46,763,000 and $43,424,000 at September 30,
2003 and December 31, 2002, respectively)
    
    
    23,381
    
    
    
    21,712Series C - 227,916 and 211,643 issued and
outstanding as of September 30, 2003 and December
31, 2002, respectively (liquidation value of
$4,558,000 and $4,233,000 at September 30, 2003 and
December 31, 2002,respectively)
    
    
    2,279
    
    
    
    2,116Series D - 153,921 issued and outstanding as of
September 30, 2003 (liquidation value of $3,078,000)
    
    
    1,539
    
    
    
    Common stock, $.0001 par value; 120,000,000 shares
authorized, 34,152,022 and 32,283,335 issued as of
September 30, 2003 and December 31, 2002,
respectively
    
    
    3,416
    
    
    
    3,229Additional paid-in capital
    
    
    51,060,560
    
    
    
    47,150,313Accumulated deficit
    
    
    (46,971,948
    )
    
    
    (42,884,579
    )4,119,227
    
    
    
    4,292,791Less treasury stock, at cost, 0 and 1,000 shares as of
September 30, 2003 and December 31, 2002, respectively
    
    
    
    
    
    
    (8,500
    )Total Stockholders Equity
    
    
    4,119,227
    
    
    
    4,284,291$
    7,514,347
    
    
    $
    8,908,551


See accompanying notes to condensed consolidated financial statements



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|(1) |  | Derived from audited financial statements in the Companys annual
report on Form 10-KSB for the year ended December 31, 2002
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

4



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##### Table of Contents









ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

Three
months ended, September 30
    
    2003
    
    2002Revenue
    
    $
    857,021
    
    
    $
    1,703,393ExpensesCost of sales
    
    
    868,773
    
    
    
    1,487,560ExpensesSelling, general and administrative
    
    
    1,059,416
    
    
    
    1,283,6951,928,189
    
    
    
    2,771,255Operating loss
    
    
    (1,071,168
    )
    
    
    (1,067,862
    )Other Income (Expense)Interest income
    
    
    3,167
    
    
    
    4,782Interest expense
    
    
    (7,953
    )
    
    
    (9,900
    )Total other income (expense)
    
    
    (4,786
    )
    
    
    (5,118
    )Loss from continuing operations
    
    
    (1,075,954
    )
    
    
    (1,072,980
    )Discontinued OperationsLoss from discontinued operations
    
    
    
    
    
    
    (252,276
    )Loss on disposal of discontinued operations
    
    
    
    
    
    
    
    
    
    
    (252,276
    )Net Loss
    
    
    (1,075,954
    )
    
    
    (1,325,256
    )Plus Preferred Stock Dividends
    
    
    (1,379,889
    )
    
    
    (623,704
    )Net Loss Available to Common Shareholder
    
    $
    (2,455,843
    )
    
    $
    (1,948,960
    )Basic and diluted loss per common share from
continuing operations
    
    $
    (0.07
    )
    
    $
    (0.05
    )Discontinued operations
    
    
    
    
    
    
    (0.01
    )Basic and Diluted Net Loss Per Common Share
    
    $
    (0.07
    )
    
    $
    (0.06
    )Weighted Average Common Shares Outstanding
    
    
    34,149,435
    
    
    
    31,196,378


See accompanying notes to condensed consolidated financial statements

5



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ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

Nine
months ended, September 30
    
    2003
    
    2002Revenue
    
    $
    3,676,495
    
    
    $
    5,025,361ExpensesCost of sales
    
    
    3,485,217
    
    
    
    4,125,485Selling, general and administrative
    
    
    3,183,752
    
    
    
    4,686,0926,668,969
    
    
    
    8,811,577Operating loss
    
    
    (2,992,474
    )
    
    
    (3,786,216
    )Other Income (Expense)Interest income
    
    
    6,154
    
    
    
    21,361Interest expense
    
    
    (34,398
    )
    
    
    (45,014
    )Total other income (expense)
    
    
    (28,244
    )
    
    
    (23,653
    )Loss from continuing operations
    
    
    (3,020,718
    )
    
    
    (3,809,869
    )Discontinued OperationsLoss from discontinued operations
    
    
    (302,503
    )
    
    
    (585,877
    )Loss on disposal of discontinued operations
    
    
    (764,148
    )
    
    
    (1,066,651
    )
    
    
    (585,877
    )Loss before cumulative effect of accounting change
    
    
    (4,087,369
    )
    
    
    (4,395,746
    )Cumulative effect of accounting change
    
    
    
    
    
    
    (4,103,872
    )Net Loss
    
    
    (4,087,369
    )
    
    
    (8,499,618
    )Plus Preferred Stock Dividends
    
    
    (3,213,133
    )
    
    
    (3,529,928
    )Net Loss Available to Common Shareholder
    
    $
    (7,300,502
    )
    
    $
    (12,029,546
    )Basic and diluted loss per common share from continuing operations
    
    $
    (0.19
    )
    
    $
    (0.24
    )Discontinued operations
    
    
    (0.03
    )
    
    
    (0.02
    )Cumulative effect of accounting change
    
    
    
    
    
    
    (0.13
    )Basic and Diluted Net Loss Per Common Share
    
    $
    (0.22
    )
    
    $
    (0.39
    )Weighted Average Common Shares Outstanding
    
    
    33,603,874
    
    
    
    31,155,117


See accompanying notes to condensed consolidated financial statements

6



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ELECTRIC CITY CORP.
STATEMENT OF CONDENSED CONSOLIDATED STOCKHOLDERS EQUITY
(Unaudited)

Series A
    
    Series A
    
    Series C
    
    Series C
    
    Series D
    
    Series D
    
    Additional
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Preferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    Preferred
    
    Paid-in
    
    Accumulated
    
    Treasury
    
    Stockholders'Common Shares
    
    Stock
    
    Shares
    
    Stock
    
    Shares
    
    Stock
    
    Shares
    
    Stock
    
    Capital
    
    Deficit
    
    Stock
    
    EquityBalance,December 31, 2002
    
    32,283,335
    
    
    $
    3,229
    
    
    
    2,171,192
    
    
    $
    21,712
    
    
    
    211,643
    
    
    $
    2,116
    
    
    
    
    
    
    $
    
    
    
    $
    47,150,313
    
    
    $
    (42,884,579
    )
    
    $
    (8,500
    )
    
    $
    4,284,291Issuance of common stock (net of offering costs of $154,790)
    
    
    1,815,125
    
    
    
    182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,514,944
    
    
    
    
    
    
    
    
    
    
    
    1,515,126Issuance of series D convertible preferred stock
(net of offering costs of $146,500)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,000
    
    
    
    1,500
    
    
    
    1,352,000
    
    
    
    
    
    
    
    
    
    
    
    1,353,500Issuance of common stock to purchasers of series D
convertible preferred stock
    
    
    22,562
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    
    
    
    
    
    
    
    
    Cumulative dividends on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,871,385
    )
    
    
    
    
    
    
    
    
    
    
    (1,871,385
    )Satisfaction of accrued dividends through the issuance
of preferred stock
    
    
    
    
    
    
    
    
    
    
    166,945
    
    
    
    1,669
    
    
    
    16,273
    
    
    
    163
    
    
    
    3,921
    
    
    
    39
    
    
    
    1,869,514
    
    
    
    
    
    
    
    
    
    
    
    1,871,385Warrants issued in connection with convertible debt issuance
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    483,400
    
    
    
    
    
    
    
    
    
    
    
    483,400Value of beneficial conversion feature of convertible notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    180,381
    
    
    
    
    
    
    
    
    
    
    
    180,381Exercise of warrants to purchase common stock
    
    
    32,000
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,997
    
    
    
    
    
    
    
    
    
    
    
    32,000Warrants issued in exchange for services received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    357,100
    
    
    
    
    
    
    
    
    
    
    
    357,100Short-swing profit contribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    798
    
    
    
    
    
    
    
    
    
    
    
    798Retirement of shares held in treasury
    
    
    (1,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,500
    )
    
    
    
    
    
    
    8,500
    
    
    
    Net loss for the nine months ended September 30, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,087,369
    )
    
    
    
    
    
    
    (4,087,369
    )Balance,September 30, 2003
    
    
    34,152,022
    
    
    $
    3,416
    
    
    
    2,338,137
    
    
    $
    23,381
    
    
    
    227,916
    
    
    $
    2,279
    
    
    
    153,921
    
    
    $
    1,539
    
    
    $
    51,060,560
    
    
    $
    (46,971,948
    )
    
    $
    
    
    
    
    4,119,227


See accompanying notes to condensed consolidated financial statements.

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ELECTRIC CITY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine months ended September 30
    
    2003
    
    2002Cash Flow from Operating ActivitiesNet loss
    
    $
    (4,087,369
    )
    
    $
    (8,499,618
    )Adjustments to reconcile net loss to net cash used in
operating activities, net of asset disposalsDepreciation and amortization
    
    
    94,828
    
    
    
    175,404Loss from disposal of discontinued operations
    
    
    764,148
    
    
    
    -Loss on disposal of fixed assets
    
    
    
    
    
    
    3,151Cumulative effect of accounting change
    
    
    
    
    
    
    4,103,872Provision for (recovery on) bad debt
    
    
    (55,000
    )
    
    
    20,330Issuance of warrants in exchange for services received
    
    
    299,100
    
    
    
    137,700Changes in assets and liabilities, net of dispositionsAccounts receivable
    
    
    230,945
    
    
    
    (1,879,185
    )Inventories
    
    
    658,914
    
    
    
    (798,732
    )Other current assets
    
    
    (31,263
    )
    
    
    26,698Accounts payable
    
    
    (190,401
    )
    
    
    940,473Accrued expenses
    
    
    (273,328
    )
    
    
    174,488Deferred revenue
    
    
    19,339
    
    
    
    150,842Net cash used in operating activities
    
    
    (2,570,087
    )
    
    
    (5,444,577
    )Cash Flows Used In Investing ActivitiesSale of discontinued operations
    
    
    929,032
    
    
    
    -Proceeds from disposal of fixed assets
    
    
    
    
    
    
    10,500Purchase of property and equipment
    
    
    (18,135
    )
    
    
    (17,487
    )Net cash provided by (used in) investing activities
    
    
    910,897
    
    
    
    (6,987
    )Cash Flows Provided by (Used in) Financing ActivitiesPayments of amounts due sellers
    
    
    
    
    
    
    (219,067
    )Net payment on line of credit
    
    
    (500,000
    )
    
    
    -Proceeds from long term debt
    
    
    1,010,000
    
    
    
    1,135,000Payment on long-term debt
    
    
    (420,769
    )
    
    
    (1,222,571
    )Proceeds from issuance of preferred stock
    
    
    1,500,000
    
    
    
    2,000,000Proceeds from issuance of common stock
    
    
    1,669,916
    
    
    
    -Cash paid for deferred financing fees
    
    
    (304,400
    )Issuance costs related to stock issuances
    
    
    (301,290
    )
    
    
    (119,743
    )Proceeds from exercise of common stock warrant
    
    
    32,000
    
    
    
    -Short-swing profit contribution
    
    
    798
    
    
    
    -Net cash provided by financing activities
    
    
    2,686,255
    
    
    
    1,573,619Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    1,027,065
    
    
    
    (3,877,945
    )Cash and Cash Equivalents, at beginning of period
    
    
    1,555,904
    
    
    
    5,486,073Cash and Cash Equivalents, at end of period
    
    $
    2,582,969
    
    
    $
    1,608,128Supplemental Disclosure of Cash Flow InformationCash paid during the periods for interest
    
    $
    36,791
    
    
    $
    41,850Cash paid during the periods for interest  discontinued operations
    
    
    8,702
    
    
    
    17,194Supplemental Disclosure of Noncash Investing and Financing Activities
Warrants issued in connection with convertible debt issuance
    
    $
    543,400
    
    
    $
    -


See accompanying notes to condensed consolidated financial statements

8



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##### Table of Contents









Electric City Corp.
Notes to Financial Statements

Note 1  Basis of Presentation

The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which, in the opinion of management, are necessary for a fair
statement of results for the interim periods.

The accompanying consolidated financial statements have been prepared on the
going concern basis which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
experienced operating losses and negative cash flow from operations since
inception and currently has an accumulated deficit. These factors raise
substantial doubt about the Companys ability to continue as a going concern.
The Companys ability to continue as a going concern is ultimately dependent on
its ability to increase sales to a level that will allow it to operate
profitably and sustain positive operating cash flows. Since the beginning of
the year the Company has successfully raised over $3 million in gross proceeds
through the private placement of equity and $1 million in gross proceeds from
the issuance of a secured convertible term note, however, there is no assurance
that this amount will be sufficient to fund operations until sales improve to
the point that the Company is able to operate from internally generated cash
flows. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the possible
inability of the Company to continue as a going concern.

The results of operations for the three months and nine months ended September
30, 2003 and 2002 are not necessarily indicative of the results to be expected
for the full year.

For further information, refer to the audited financial statements and the
related footnotes included in the Electric City Corp. Annual Report on Form
10-KSB, for the year ended December 31, 2002.

9



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##### Table of Contents



Note 2  Stock-based Compensation

At September 30, 2003, the Company had a stock-based compensation plan, which
is more fully described in Note 17 in the Companys Annual Report on Form
10-KSB as filed on March 31, 2003. The Company applies and intends to continue
to apply the recognition and intrinsic value measurement principles of
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued
to Employees, and related Interpretations in accounting for those plans. No
stock-based compensation expense was reflected in the net loss for the three
and nine month periods ended September 30, 2003 or September 30, 2002, as all
options granted under the plan had an exercise price equal to or greater than
the market value of the underlying common stock on the date of the grant. The
following table illustrates the effect on the net loss and earnings per share
if the Company had applied the fair value recognition provisions of SFAS No.
123, Accounting for Stock-Based Compensation, to stock-based compensation:

Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302003
    
    2002
    
    2003
    
    2002Net Loss, as reported
    
    $
    (1,076,000
    )
    
    $
    (1,325,000
    )
    
    $
    (4,087,000
    )
    
    $
    (8,500,000
    )Deduct: Stock-based employee
compensation expense included in
reported net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Add: Total stock-based
employee compensation (expense)
income determined under fair value
based method for awards(1)
    
    
    (223,000
    )
    
    
    (1,373,000
    )
    
    
    (566,000
    )
    
    
    989,000
    (2)Net Loss, pro-forma
    
    
    (1,299,000
    )
    
    
    (2,698,000
    )
    
    
    (4,653,000
    )
    
    
    (7,511,000
    )Preferred stock dividends
    
    
    (1,380,000
    )
    
    
    (624,000
    )
    
    
    (3,213,000
    )
    
    
    (3,530,000
    )Net Loss Available to
Common Shareholder
    
    $
    (2,679,000
    )
    
    $
    (3,322,000
    )
    
    $
    (7,866,000
    )
    
    $
    (11,041,000
    )Net loss per shareBasic and diluted  as
reported
    
    $
    (0.07
    )
    
    $
    (0.06
    )
    
    $
    (0.22
    )
    
    $
    (0.39
    )Basic and diluted  pro-forma
    
    $
    (0.08
    )
    
    $
    (0.10
    )
    
    $
    (0.24
    )
    
    $
    (0.36
    )




---

| |  | (1) All awards refer to awards granted, modified, or settled in fiscal periods beginning after December 15, 1994  that is,
awards for which the fair value was required to be measured and disclosed under Statement 123.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (2) Certain former employees forfeited options during the first nine months of 2002, which resulted in a reduction in
pro-forma compensation expense for the nine month period ended September 30, 2002.                  

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##### Table of Contents



Note 3  Recent Accounting Pronouncements

On January 1, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets
effective for fiscal years beginning after December 15, 2001. In
accordance with SFAS No. 142, the Company completed transitional impairment
testing of intangible assets during the second quarter of fiscal 2002. The
impairment testing was performed in two steps: first, determining whether there
was an impairment, based upon the fair value of a reporting unit as compared to
its carrying value, and second, if there was an impairment, the determination
of the impairment loss by comparing the implied fair value of goodwill with the
carrying amount of that goodwill. Using conservative but realistic assumptions
to model its power management business and building control and automation
business, the Company determined that the carrying value of the power
management business was greater than the derived fair value, indicating an
impairment in the recorded goodwill. To determine fair value, the Company
relied on a discounted cash flow analysis. For goodwill valuation purposes
only, the revised fair value of this unit was allocated to the assets and
liabilities of the reporting unit to arrive at an implied fair value of
goodwill, based upon known facts and circumstances, as if the acquisition
occurred currently. The preliminary allocation resulted in a write-down of
recorded goodwill in the amount of $4,103,872, which was recorded as a
cumulative effect of a change in an accounting principle during the first half
of 2002

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
requires that certain financial instruments, which under previous guidance were
accounted for as equity, must now be accounted for as liabilities. The
financial instruments affected include mandatory redeemable stock, certain
financial instruments that require or may require the issuer to buy back some
of its shares in exchange for cash or other assets and certain obligations that
can be settled with shares of stock. SFAS No. 150 is generally effective for
all financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning
after June 15, 2003. The adoption of this standard did not have a material
impact on our consolidated financial statements.

In November 2002, the Emerging Issues Task Force (EITF) reached consensus on
EITF 00-21, Accounting for Revenue Arrangements with Multiple Deliverables,
which addresses how to account for arrangements that may involve the delivery
or performance of multiple products, services, and/or rights to use assets. The
final consensus of EITF 00-21 was applicable to agreements entered into in
fiscal periods beginning after June 15, 2003, with early adoption permitted.
Additionally, companies were permitted to apply the consensus guidance to all
existing arrangements as the cumulative effect of a change in accounting
principle in accordance with APB Opinion No. 20, Accounting Changes. The
adoption of EITF No. 00-21 did not have a material impact on the Companys
results of operations or financial condition.

Note 4  Net Loss Per Share

The Company computes loss per share under Statement of Financial Accounting
Standards (SFAS) No. 128 Earnings Per Share, which requires presentation of
two amounts: basic and diluted loss per common share. Basic loss per common
share is computed by dividing loss available to common stockholders by the
number of weighted average common shares outstanding, and includes all common
stock issued. Diluted earnings would include all common stock equivalents.
The Company has not included the outstanding options, warrants or shares
issuable upon conversion of the preferred stock as common stock equivalents in
the computation of diluted loss per share for the three months and nine months
ended September 30, 2003 and 2002 because the effect would be antidilutive.

11



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##### Table of Contents



The following table sets forth the weighted average shares issuable upon
exercise of outstanding options and warrants and conversion of preferred stock
that are not included in the basic and diluted loss per share available to
common stockholders because to do so would be antidilutive:

Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302003
    
    2002
    
    2003
    
    2002Weighted average shares
issuable upon
exercise of
outstanding options
    
    
    10,319,000
    
    
    
    9,014,000
    
    
    
    10,282,000
    
    
    
    9,251,000Weighted average shares
issuable upon
exercise of
outstanding warrants
    
    
    9,447,000
    
    
    
    11,428,000
    
    
    
    9,037,000
    
    
    
    11,995,000Weighted average shares
issuable upon
conversion of
preferred stock
    
    
    26,544,000
    
    
    
    24,968,000
    
    
    
    24,135,000
    
    
    
    20,861,000Weighted average shares
issuable upon
conversion of
convertible debt
    
    
    103,000
    
    
    
    
    
    
    
    35,000
    
    
    
    Total
    
    
    46,413,000
    
    
    
    45,410,000
    
    
    
    43,489,000
    
    
    
    42,107,000


Note 5  Warranty Obligations

The Company warrants to the purchasers of its EnergySaver line of products that
the product will be free of defects in material and workmanship for one year
from the date of installation. The Company records the estimated cost that may
be incurred under its warranties at the time the product revenue is recognized
based upon the relationship between historical and anticipated warranty costs
and sales volumes. The Company periodically assesses the adequacy of its
recorded warranty liability and adjusts the amounts as necessary. While the
Company believes that its estimated liability for product warranties is
adequate and that the judgment applied is appropriate, the estimated liability
for product warranties could differ materially from actual future warranty
costs. Changes in the Companys warranty liability are as follows:

Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302003
    
    2002
    
    2003
    
    2002Balance, beginning of period
    
    $
    122,892
    
    
    $
    109,979
    
    
    $
    107,127
    
    
    $
    60,394Warranties issued
    
    
    5,250
    
    
    
    16,500
    
    
    
    48,750
    
    
    
    83,000Settlements
    
    
    (6,741
    )
    
    
    (4,509
    )
    
    
    (34,476
    )
    
    
    (21,424
    )Balance, as of September 30
    
    $
    121,401
    
    
    $
    121,970
    
    
    $
    121,401
    
    
    $
    121,970


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##### Table of Contents



Note 6  Inventories

Inventories consisted of the following:

September 30,
    
    December 31,2003
    
    2002Raw materials
    
    $
    561,490
    
    
    $
    1,488,886Work in process
    
    
    11,517
    
    
    
    29,857Finished goods
    
    
    681,914
    
    
    
    1,077,475$
    1,254,921
    
    
    $
    2,596,218


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##### Table of Contents



Note 7  Dividends

Dividends are comprised of the following:

Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302003
    
    2002
    
    2003
    
    2002Accrual of Dividend on Series
A Convertible Preferred
    
    $
    570,277
    
    
    $
    516,643
    
    
    $
    1,669,444
    
    
    $
    1,512,434Accrual of Dividend on Series
C Convertible Preferred
    
    
    55,589
    
    
    
    50,361
    
    
    
    162,733
    
    
    
    64,805Accrual of Dividend on Series
D Convertible Preferred
    
    
    37,542
    
    
    
    
    
    
    
    39,208
    
    
    
    Deemed dividend associated
with beneficial conversion
feature of Series C
Convertible Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,444,697Deemed dividend associated
with beneficial conversion
feature of Series D
Convertible Preferred
Stock
    
    
    
    
    
    
    
    
    
    
    386,984
    
    
    
    Deemed dividend associated
with beneficial conversion
price on shares issued in
satisfaction of Series A
Convertible Preferred
dividend
    
    
    615,900
    
    
    
    51,664
    
    
    
    833,021
    
    
    
    495,589Deemed dividend associated
with beneficial conversion
price on shares issued in
satisfaction of Series C
Convertible Preferred
dividend
    
    
    60,036
    
    
    
    5,036
    
    
    
    81,200
    
    
    
    12,403Deemed dividend associated
with beneficial conversion
price on shares issued in
satisfaction of Series D
Convertible Preferred
dividend
    
    
    40,545
    
    
    
    
    
    
    
    40,545
    
    
    
    Total
    
    $
    1,379,889
    
    
    $
    623,704
    
    
    $
    3,213,133
    
    
    $
    3,529,928


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##### Table of Contents



Note 8  Business Segment Information

The Company organizes and manages its business in two distinct segments: the
Energy Technology segment, and the Building Control and Automation segment. In
classifying its operational entities into a particular segment, the Company
segregated its businesses with similar economic characteristics, products and
services, production processes, customers, and methods of distribution into
distinct operating groups.

The Energy Technology segment designs, manufacturers and markets energy saving
technologies, primarily to commercial and industrial customers. The principal
products produced by this segment are the EnergySaver and the Global Commander.
This segment is headquartered, and most of its operations are located, in Elk
Grove Village, Illinois.

The Building Control and Automation segment, which is comprised of our Great
Lakes Controlled Energy subsidiary, provides integration of building and
environmental control systems for commercial and industrial customers. Great
Lakes Controlled Energy is headquartered in, and operates out of its own
facility, located in Elk Grove Village, Illinois.

Prior to fiscal year 2003, the Companys reportable segments included the Power
Management segment, which designed, manufactured and marketed a wide range of
commercial and industrial switching gear and distribution panels. Effective
May 31, 2003, the Company divested this segment, accordingly, the net assets
and operating results have been separately reported as discontinued operations.
Prior year segment information has been restated to reflect corporate costs
previously allocated to the Power Management segment, which will continue
despite the divestiture of the segment.

The following is the Companys business segment information:

Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302003
    
    2002
    
    2003
    
    2002Revenues:Energy Technology
    
    $
    275,000
    
    
    $
    637,000
    
    
    $
    1,841,000
    
    
    $
    3,203,000Building Automation
Controls
    
    
    597,000
    
    
    
    1,098,000
    
    
    
    1,884,000
    
    
    
    2,303,000Intercompany sales -
Energy Technology
    
    
    (15,000
    )
    
    
    (27,000
    )
    
    
    (36,000
    )
    
    
    (37,000
    )Intercompany sales -
Building Automation
Controls
    
    
    
    
    
    
    (5,000
    )
    
    
    (13,000
    )
    
    
    (444,000
    )Total
    
    
    857,000
    
    
    
    1,703,000
    
    
    
    3,676,000
    
    
    
    5,025,000Operating Loss:Energy Technology
    
    
    (488,000
    )
    
    
    (583,000
    )
    
    
    (1,327,000
    )
    
    
    (1,865,000
    )Building Automation
Controls
    
    
    (147,000
    )
    
    
    (28,000
    )
    
    
    (459,000
    )
    
    
    (279,000
    )Corporate Overhead
    
    
    (436,000
    )
    
    
    (457,000
    )
    
    
    (1,207,000
    )
    
    
    (1,642,000
    )Total
    
    
    (1,071,000
    )
    
    
    (1,068,000
    )
    
    
    (2,993,000
    )
    
    
    (3,786,000
    )Other Expense
    
    
    (5,000
    )
    
    
    (5,000
    )
    
    
    (28,000
    )
    
    
    (24,000
    )Loss from continuing
operations
    
    
    (1,076,000
    )
    
    
    (1,073,000
    )
    
    
    (3,021,000
    )
    
    
    (3,810,000
    )


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##### Table of Contents



September
    
    December30, 2003
    
    31, 2002Total Assets:Energy Technology
    
    $
    6,149,000
    
    
    $
    4,999,000Building Automation
Controls
    
    
    1,256,000
    
    
    
    1,029,000Power Management
    
    
    
    
    
    
    2,881,000Total
    
    $
    7,405,000
    
    
    $
    8,909,000


Note 9  Discontinued Operations

The Company adopted Statement of Financial Accounting Standards No. 144 (SFAS
144) at the beginning of 2002. Among other things, SFAS 144 requires that the
results of operations and related disposal costs as well as the gain or loss on
the disposal of a business unit be presented on the statement of operations as
a separate component of income before extraordinary items for all periods
presented.

On June 3, 2003, the Company entered into an asset purchase agreement with
Hoppensteadt Acquisition Corp., whereby Hoppensteadt acquired all of the
assets, except for certain receivables and cash, and assumed all of the
liabilities, except for bank debt, of the Company Power Management segment as
of May 31, 2003, in exchange for $929,032 in cash. Hoppensteadt Acquisition
Corp. is owned by a group of investors that includes former managers of the
Companys Power Management segment.

The assets and liabilities of the discontinued operations that are included in
the Companys consolidated assets and liabilities are as follows:

September 30,
    
    December 31,2003
    
    2002Accounts receivable
    
    $
    
    
    
    $
    1,303,658Other current assets
    
    
    
    
    
    
    787,198Total current assets
    
    
    
    
    
    
    2,090,856Net property plant and equipment
    
    
    
    
    
    
    382,103Other assets
    
    
    
    
    
    
    1,955Total assets
    
    
    
    
    
    $
    2,474,914Accounts payable
    
    $
    
    
    
    $
    992,000Accrued expenses
    
    
    
    
    
    
    48,875Total current liabilities
    
    
    
    
    
    
    1,040,875Total liabilities
    
    $
    
    
    
    $
    1,040,875


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##### Table of Contents



The revenue and loss related to discontinued operations were as follows:

Three Months Ended
    
    Nine Months EndedSeptember 30
    
    September 302003
    
    2002
    
    2003
    
    2002Revenue
    
    $
    
    
    
    $
    1,671,261
    
    
    $
    2,484,336
    
    
    $
    4,923,096Net loss
    
    
    
    
    
    
    (252,276
    )
    
    
    (1,066,651
    )
    
    
    (585,877
    )


Note 10  Equity Issuances

On February 27, 2003, the Company entered into a securities purchase agreement
with the SF Capital partners Ltd. (SF), whereby it issued in exchange for
$1,000,000 in gross proceeds, a package of securities that included 1,086,957
shares of its common stock and a five year warrant to purchase 300,000
additional shares of its common stock at an initial exercise price of $0.92 per
share. The Company is required to reduce the exercise price on the warrant to
$0.75 per share if on the date that it files its Annual Report on Form 10-KSB
for fiscal year 2003 with the Securities and Exchange Commission (i) its
consolidated revenue reported in such 10-KSB is less than $25 million and (ii)
the closing price of its Common Stock on such date of filing is less than $2.00
per share.

On March 26, 2003, the Board of Directors declared dividends payable on our
Series A, and Series C Convertible Preferred Stock for the calendar quarter
ending March 31, 2003 to shareholders of record of our Series A, Series C and
Series D Convertible Preferred Stock as of March 31, 2003. The dividends were
paid on March 31, 2003 in additional shares of preferred stock to the holders
as follows: 54,280 shares to the Series A stockholders and 5,291 shares to the
Series C stockholder. Each share of Series A, and Series C Convertible
Preferred Stock is convertible into 10 shares of our common stock.

During April 2003, the holder of a warrant to purchase 27,000 shares of the
Companys common stock at $1.00 per share elected to exercised the warrant in
full.

On April 17, 2003, the Company entered into a securities purchase agreement
with the Munder Power Plus Fund (Munder), whereby it issued in exchange for
$250,000 in gross proceeds, a package of securities that included 271,739
shares of its common stock and a five year warrant to purchase 75,000
additional shares of its common stock at an initial exercise price of $0.92 per
share. The Company is required to reduce the exercise price on the warrant to
$0.75 per share if on the date that it files its Annual Report on Form 10-KSB
for fiscal year 2003 with the Securities and Exchange Commission (i) its
consolidated revenue reported in such 10-KSB is less than $25 million and (ii)
the closing price of its Common Stock on such date of filing is less than $2.00
per share.

On April 23, 2003, the Company entered into a securities purchase agreement
with Mr. Richard Kiphart, whereby it issued in exchange for $419,914 in gross
proceeds, a package of securities that included 456,429 shares of its common
stock and a five year warrant to purchase 125,974 additional shares of its
common stock at an initial exercise price of $0.92 per share. The Company is
required to reduce the exercise price on the warrant to $0.75 per share if on
the date that it files its Annual Report on Form 10-KSB for fiscal year 2003
with the Securities and Exchange Commission (i) its consolidated revenue
reported in such 10-KSB is less than $25 million and (ii) the closing price of
its Common Stock on such date of filing is less than $2.00 per share.

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##### Table of Contents



On June 27, 2003, the Company entered into a securities purchase agreement with
a group of investors that included Cinergy Ventures II, LLC, Mr. Richard
Kiphart, SF Capital Partners, John Thomas Hurvis Revocable Trust and Mr. David
Asplund, whereby it issued in exchange for $1,500,000 in gross proceeds, a
package of securities that included 150,000 shares of its Series D Convertible
Preferred Stock, 22,562 shares of its common stock, warrants to purchase 37,500
additional shares of its Series D Preferred and warrants to purchase 210,938
additional shares of its common stock (the Transaction).

The Series D Convertible Preferred carries a dividend rate of 10% per year,
which is payable during the first three years following issuance at the
Companys option, in cash or additional shares of Series D Convertible
Preferred stock. After three years all dividends must be paid in cash and the
dividend rate will increase 1/2% every six months until it reaches 15% per
year.

The Series D Convertible Preferred is convertible at anytime into shares of the
Companys common stock at the conversion rate of ten shares of common stock for
each share of Series D Convertible Preferred. Shares of Series D Convertible
Preferred have, subject to certain exceptions, anti-dilution protection that
will automatically adjust the conversion price of the Series D Preferred to the
price per share of any common stock the Company issues, or is deemed to have
issued, if that price per share is less than the then existing conversion price
for the Series D Convertible Preferred. The Series D Convertible Preferred is
also subject to other customary anti-dilution provisions with respect to stock
splits, stock dividends, stock combinations, reorganizations, mergers,
consolidations, special distributions, sales of all or substantially all of our
assets and similar events.

The Series D Convertible Preferred Stock possesses a liquidation preference
over all other classes of the Companys equity, other than the Series A and
Series C Convertible Preferred Stock. In addition, the holders of the Series D
Convertible Preferred Stock, in conjunction with the holders of the Series A
and Series C Convertible Preferred Stock, have special approval rights over
certain matters, including but not limited to, mergers and acquisitions, the
issuance of additional debt or equity securities, the sale of assets outside
the normal course of business, the payment of dividends, the hiring or firing
of the Companys Chief Executive Officer or President, significant capital
expenditures, and amendments to the Companys Certificate of Incorporation
and/or by-laws that in any way could adversely affect the rights of the holders
of the Series A, Series C and/or Series D Convertible Preferred Stock.

For accounting purposes, proceeds from the Transaction were allocated to the
Series D Convertible Preferred Stock, the common stock and warrants issued as
part of the Transaction based on their relative fair values. The difference
between the value allocated to the Series D Convertible Preferred Stock and the
market price of the Companys common stock on the date of issue, in addition to
the value of the stock and warrants issued as part of the Transaction were
deemed to be equivalent to a non-cash preferred stock dividend. The Company
recorded the deemed dividend on the date of issuance by offsetting charges and
credits to additional paid-in capital in the amount of $386,983, without any
effect on total stockholders equity. The deemed dividend increases the loss
applicable to common shareholders in the calculation of the basic and diluted
net loss per common share for the nine month period ended September 30, 2003.

On June 30, 2003, the Board of Directors declared dividends payable on our
Series A, Series C and Series D Convertible Preferred Stock for the calendar
quarter ending June 30, 2003 to shareholders of record of our Series A, Series
C and Series D Convertible Preferred Stock as of June 30, 2003. The dividends
were paid on June 30, 2003 in additional shares of preferred stock to the
holders as follows: 55,638 shares to the Series A stockholders, 5,423 shares to
the Series C stockholder and 166 shares to the Series D stockholders. Each
share of Series A, Series C and Series D Convertible Preferred Stock is
convertible into 10 shares of our common stock.

During August 2003, the holder of a warrant to purchase 5,000 shares of the
Companys common stock at $1.00 per share elected to exercised the warrant in
full.

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##### Table of Contents



During September 2003, the Company entered into a financing arrangement with
Laurus Master Fund, Ltd. (Laurus). As part of this transaction the Company
issued warrants to purchase 420,000 shares of its common stock. The warrants
have exercise prices ranging from $2.44 per share to $3.18 per share and have
terms of five years. Please see Note 11 for additional information on this
transaction.

During the nine month period ended September 30, 2003, the Company issued
warrants to purchase a total of 572,000 shares of the Companys common stock to
consultants as compensation for services received. These warrants have
exercise prices ranging from $1.00 per share to $2.00 per share and have a
terms of one to three years. The warrants were valued at $357,100 using a
modified Black-Sholes option pricing model and were charged to operations
during the period.

On September 24, 2003, the Companys Board of Directors declared dividends
payable on the Series A, Series C and Series D Convertible Preferred Stock for
the calendar quarter ending September 30, 2003 to shareholders of record of the
Series A, Series C and Series D Convertible Preferred Stock as of September 30,
2003. The dividends were paid on September 30, 2003 in additional shares of
preferred stock to the holders as follows: 57,027 shares to the Series A
stockholders, 5,559 shares to the Series C stockholder and 3,755 shares to the
Series D stockholders. Each share of Series A, Series C and Series D
Convertible Preferred Stock is convertible into 10 shares of the Companys
common stock.

Note 11  Debt Issuances

The Company entered into a financing arrangement with Laurus Master Fund, Ltd.
as of September 11, 2003, providing for a $1,000,000 term loan (the Term
Loan) and a revolving credit facility of up to $2,000,000.

The Term Loan has a term of two years and accrues interest at the greater of
prime (currently 4.00%) plus 1.75% or 6%. Interest on the Term Loan will be
due monthly in arrears and the loan will amortize at the rate of $50,000 per
month beginning February 1, 2004. The Company has the option of paying
scheduled interest and principal, or prepaying all or a portion of the Term
Loan with shares of its common stock at the fixed conversion price of $2.12 per
share (which was equal to 103% of the recent market price of our common stock
at that time), provided that the closing price of the common stock is greater
than $2.43 per share for the 11 trading days immediately proceeding the payment
date and that the shares are registered with Securities and Exchange
Commission. We have commenced (but not yet completed) the process of
registration of shares of our common stock for such purpose. Laurus also has
the option to convert all or a portion of the Term Loan into shares of the
Companys common stock at any time, subject to certain limitations, at a fixed
conversion price of $2.12 per share. The Term Loan is secured by a blanket
lien on all of the Companys assets, except for its real estate. In
conjunction with the Term Loan, Laurus was paid a fee of $50,000 and received a
five year warrant to purchase up to 140,000 shares of the Companys common
stock at prices ranging from $2.44 per share to $3.07 per share. The warrants
were valued at $163,400 using a modified Black-Sholes option pricing model.
The value of these warrants was recorded as a discount to the term note and
will be amortized over the term of the loan using the effective interest
method.

The Term Loan is considered to have a beneficial conversion feature since the
fair market value of the common stock issuable upon conversion of the Term Loan
exceeded the value allocated to the Term Loan on the date of issuance. On the
date of issuance the Term Loan was convertible into 471,698 shares of common
stock, which at the then current market price of $2.05 per share was worth
$966,981. The difference between the market value of the shares issuable upon
conversion and the value allocated to the Term Loan ($180,381) is considered to
be the value of the beneficial conversion feature. The value of the beneficial
conversion feature has been recorded as a discount to the term note and will be
amortized over the term of the loan using the effective interest method.

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The revolving credit facility provides for borrowings of up to the lesser of
(i) $2 million or (ii) 90% of the Companys eligible accounts receivable. The
Company has not borrowed under the facility. As of September 30, 2003 eligible
receivables would support borrowings of approximately $300,000 under the
facility. The revolving credit facility also has a term of two years and
accrues interest at the rate of prime (currently 4.00%) plus 1.75%. The
Company has the option of paying interest and principal, or prepaying all or a
portion of the advances under each secured convertible revolving note with
shares of its common stock at the fixed conversion price of $2.12 per share,
provided that the closing price of its common stock is greater than $2.43 per
share for the 11 trading days immediately proceeding the payment date and that
the shares are registered with Securities and Exchange Commission. (We are in
the process of registering share of common stock for this purpose as well.) As
amounts are drawn on this line-of-credit, to the extent the current market
price exceeds the fixed conversion price, additional interest expense will be
recognized for this beneficial conversion feature. In addition, Laurus has the
option to convert all or a portion of the advances under any Secured
Convertible Revolving Note into shares of the Companys common stock at any
time, subject to certain limitations, at a fixed conversion price of $2.12 per
share. The revolving credit facility is also secured by a blanket lien on all
of the Companys assets, except for its real estate. In conjunction with the
revolving credit facility, Laurus was paid a fee of $100,000 and received a
five year warrant to purchase up to 280,000 shares of the Companys common
stock at prices ranging from $2.54 per share to $3.18 per share. These
warrants were valued at $320,000 using a modified Black-Sholes option pricing
model. All stock conversion prices and exercise prices are subject to
adjustment for stock splits, stock dividends or similar events.

All the fees and expenses associated with this transaction, as well as the
value of the warrants associated with the revolving credit facility have been
recorded as deferred financing costs. These costs will be amortized over the
two- year term of the underlying credit agreements using the effective interest
method.

The aggregate amounts of long-term debt maturing in each of the next five years
are as follows:

2003
    
    $
    9,7462004
    
    
    589,1552005
    
    
    1,048,4512006
    
    
    2,1602007
    
    
    $
    1,649,512


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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSISOF FINANCIAL CONDITION OR PLAN OF OPERATION


You should read the following discussion regarding the Company along with the
Companys financial statements and related notes included in this quarterly
report. This quarterly report, including the following discussion, contains
forward-looking statements that are subject to risks, uncertainties and
assumptions. The Companys actual results, performance and achievements in
2003 and beyond may differ materially from those expressed in, or implied by,
these forward-looking statements. See Cautionary Note Regarding
Forward-Looking Statements.

Overview

We are a developer, manufacturer and integrator of energy savings technologies,
and building automation systems as well as an independent developer of
scalable, negative power systems. We currently market the EnergySaver, the
GlobalCommander® and LightMaster energy conservation technologies, as well
as our independent development of scalable, negative power systems under the
trade name, Virtual Negawatt Power Plan VNPP®. Electric City is based in
Elk Grove Village, Illinois and is traded on The American Stock Exchange under
the symbol ELC. Our premier energy saving product is the EnergySaver system,
which reduces energy consumed by lighting, typically by 20% to 30%, with
minimal reduction in lighting levels. This technology has applications in
commercial buildings, factories and office structures, as well as street
lighting and parking lot lighting. Combining the technologies of the
EnergySaver and GlobalCommander led to the development of our Virtual
Negawatt Power Plan concept, which is essentially a negative power system
which we intend to market primarily to utilities as a demand response system.
It is envisioned that the demand reduction will be specifically placed across a
utility grid targeting potential hot spots such as particular feeders or
substations. We believe that the Electric City VNPP will be the first demand
response system to provide this level of control to a utility without requiring
active customer participation and without impacting a customers operations or
ability to do business. The VNPP can be developed in conjunction with a
utility provider, a utilitys independent power subsidiary or with other sister
companies within a utility family. In some markets, the VNPP can be developed
completely at risk just as the industry has seen the development of independent
power plants or with a long-term negative power purchase agreement with a
utility. We recently entered into an agreement with Commonwealth Edison
(ComEd) to develop the first 50-megawatt VNPP system, to be located in
northern Illinois. We anticipate that we will have to install approximately
1,500 EnergySavers over the next 18 to 24 months to deliver the 50 megawatts of
curtailment envisioned under this contract. In addition to our EnergySaver
system, we design, install and monitor building control and environmental
systems through our subsidiary Great Lakes Controlled Energy Corp. (Great
Lakes).

Results of Operations

Our revenues reflect the sale of our products, net of allowances for returns
and other adjustments. Revenues of Electric City and its subsidiary are
generated from the sale of products and services, the vast majority of which
are sold in the U.S.

Our cost of goods sold consists primarily of materials and labor. Also
included in our cost of goods sold are freight, charges from third parties for
installation of our products, costs of operating our manufacturing facility,
charges for potential future warranty claims, and royalty costs related to
EnergySaver sales. Cost of goods sold also includes the wages and expenses of
our engineering group at Great Lakes.

Sales and gross profits depend, in part, on the volume and mix of products sold
during any given period. Generally, products that we manufacture have a higher
gross profit margin than products that we purchase and resell.

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A portion of our operating expense is relatively fixed, such as the cost of our
facilities. Accordingly, an increase in the volume of sales will generally
result in an increase to our gross margins since these fixed expenses do not
increase proportionately with sales. We have not consistently utilized the
manufacturing capacity of our facility and, therefore, believe that the fixed
nature of some of our expenses would contribute to an increase in our gross
margin in future periods if sales volumes increase. In particular we believe
that our facility in Elk Grove Village can support a sales level of EnergySaver
products of approximately $15 million to $20 million per year without a
significant further investment in fixed assets.

Selling, general and administrative (SG&A) expenses include the following
components:



| |  |  | direct labor and commission costs related to our employee sales force;
| | - |  | ----------------------------------------------------------------------



| |  |  | commission costs related to our independent sales representatives and our distributors;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | expenses related to our non-manufacturing management, supervisory
and staff salaries and employee benefits;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | costs related to insurance, travel and customer entertainment and
office supplies costs and the cost of non-manufacturing utilities;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | costs related with marketing and advertising our products;
| | - |  | ----------------------------------------------------------



| |  |  | costs of outside professionals such as lawyers, accountants, and
investor relations professionals;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | research and development expenses;
| | - |  | ----------------------------------



| |  |  | costs related to administrative functions that serve to support the
existing businesses of the Company, as well as to provide the
infrastructure for future growth.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest expense includes the costs and expenses associated with working
capital indebtedness, the mortgage on our headquarters building, various
vehicle loans and a note to the sellers of Marino Electric which was repaid in
full in May 2002, all as reflected on our current and prior financial
statements.

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002.

Our total revenue for the three-month period ended September 30, 2003 declined
$846,372 or 49.7% to $857,021 as compared to $1,703,393 for the quarter ended
September 30, 2002. Revenue related to EnergySaver sales declined
approximately $350,000, or 57%, to approximately $260,000 for the three months
ended September 30, 2003 as compared to approximately $610,000 for the same
period in 2002. EnergySavers unit sales decreased 68% to 21 units during the
second quarter of 2003 from 66 units sold during the second quarter of 2002.
We believe the decline in EnergySaver revenue is the result of (1) our
customers continued deferral of discretionary expenditures until economic
conditions improve, and (2) to managements decision to shift resources to
focus on the Companys new utility initiative, and in particular the
Commonwealth Edison (ComEd) VNPP. The ComEd VNPP agreement was finalized during
the third quarter and as a result Companys in house sales resources have been
actively seeking customers to participate in the newly created program. The
Company shipped its first units as part of the ComEd program in late September,
but the recognition of revenue on the shipments was deferred pending
installation of the units, which was completed in October. The ComEd agreement
is expected to result in sales of approximately 1,500 units over the next 18 to
24 months. Revenue for the fourth quarter of 2003 is expected to rebound as a
result of continued shipments under the ComEd program and as the result of a
direct sales contract that was executed in September with a local government
agency to install EnergySavers worth up to $4 million in multiple sites
throughout Chicago. We expect to begin installing EnergySavers under this
contract during the fourth quarter of 2003, and hope to have all the units
installed by mid-2005.

Revenue from the sale of building automation products and services decreased
approximately $496,000, or 45% to $597,000 during the three month period ended
September 30, 2003, from approximately $1,093,000 recorded in the same period
of 2002. Revenue in this segment is recognized as work is completed and
material is delivered to the job site. The third quarter of 2002 was a very
strong quarter,

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benefiting from two significant projects that were both in very active phases,
generating good monthly revenue for this segment. The building automation
segment actually had more projects underway during the third quarter of 2003
than during the year earlier period, but collectively these projects were not
as active as the two projects were in the 2002, thus resulting in lower
revenue. We expect the revenue for this segment to remain largely unchanged in
future periods from the level realized in the most recent quarterly reporting
period.

Cost of sales for the three-month period ended September 30, 2003 declined
$618,787, or 41.6% to $868,773 as compared to $1,487,560 for the three-month
period ended September 30, 2002. Gross profit for the third quarter of 2003
declined $227,585 to a loss of $11,752 from a profit of $215,833 in the third
quarter of 2002. The Building Automation and Controls segment was responsible
for approximately two-thirds of the decline in the gross profit. This segment
changed to a more conservative method of accounting whereby it defers
recognition of all job related profits until the completion of the project. We
review each project on a monthly basis and if as part of this review we
determine the project will incur a loss, the loss is recognized immediately.
Since no jobs were completed during the quarter, no profits were recognized on
job related revenue. Profits in the EnergySaver business were negatively
impacted by the decline in sales volume, resulting in unabsorbed fixed
manufacturing overhead due to under utilization of our manufacturing capacity.
As sales begin to increase due to the ComEd project, we expect our
manufacturing capacity to quickly become fully utilized. Rather than adding
significantly to our manufacturing overhead, we plan to leverage a new
outsourcing relationship recently established with GE Industrial to provide
major system components and outsourced production for our EnergySaver product
line. The three-year non-binding agreement includes reciprocal
purchasing,
VNPP participation, joint product
development and additional joint efforts.

SG&A for the three-month period ended September 30, 2003 decreased $224,279, or
17.5% to $1,059,416, as compared to $1,283,695 for the three-month period ended
September 30, 2002. Contributing to the decline in SG&A was a $136,000
reduction in salary expense due to our restructuring efforts that led to a
reduction in headcount, and reductions in sales commissions to outside third
parties and a refund of insurance premiums paid during 2002.

Other expense for the three-month period ending September 30, 2003 decreased
$332, or 6.5% to $4,786 from $5,118 for the three-month period ended September
30, 2002. Interest expense declined $1,947 or 19.7% to $7,953 from $9,900 for
the same period in 2002. The decline in interest expense was primarily due to
lower levels of borrowing and lower interest rates. Interest income of $3,167
for the third quarter of 2003 was $1,615 lower than that recorded in the third
quarter of 2002 due to lower interest rates paid on invested cash balances.

Our dividend expense for the third quarter of 2003 increased $756,185 to
$1,379,889 from $623,704 for the same period in 2002. We accrued dividends of
$663,408 and $567,004 on our Convertible Preferred Stock during the three-month
periods ended September 30, 2003 and 2002 respectively. The increase in the
dividend accrual was due primarily to an increase in the total shares
outstanding as a result of the issuance of shares of the Series D Convertible
Preferred in June 2003 and the issuance of shares of preferred stock in
satisfaction of accrued dividends. The dividends accrued during the third
quarters of 2003 and 2002 were satisfied through the issuance of 66,341 and
56,700 additional shares of our preferred stock, respectively. Due to the
conversion price on these shares relative to the market price of our common
stock on the date of issue we were required to recognize non-cash deemed
dividends of $716,481 and $56,700 on September 30, 2003 and 2002, respectively.
The increase in this deemed dividend is primarily the result of the increased
difference in the market price of our common stock relative to the conversion
price of the dividend shares. The closing market price of our stock on
September 30, 2003 was $2.08 as compared to $1.10 on September 30, 2002.

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Nine months Ended September 30, 2003 Compared to Nine months Ended September 30, 2002.

Our total revenue for the nine-month period ended September 30, 2003 declined
$1,348,866 or 26.8% to $3,676,495 as compared to $5,025,361 for the nine-month
period ended September 30, 2002. Revenue related to EnergySaver sales declined
approximately $1,360,000, or 43%, to approximately $1,805,000 for the
nine-month period ended September 30, 2003 as compared to approximately
$3,166,000 for the same period in 2002. EnergySavers unit sales declined 41%
to 196 units during the first nine months of 2003 from 332 units sold during
the first nine months of 2002. The decline in EnergySaver revenue is partially
related to the decision on our customers part to continue to defer
discretionary expenditures until they are more confident of future economic
conditions. EnergySaver revenue was also impacted by managements decision to
shift resources to focus on the Companys new utility initiative, and in
particular the Commonwealth Edison (ComEd) VNPP. The ComEd VNPP agreement was
finalized during the third quarter of 2003 and as a result Companys in house
sales resources have been actively seeking customers to participate in the
newly created program. We shipped our first units as part of the ComEd program
in late September, but the recognition of revenue on the shipments was deferred
pending installation of the units, which occurred in October. The ComEd
agreement is expected to result in sales of approximately 1,500 units over the
next 18 to 24 months.

Revenue from the sale of building automation products and services increased
approximately $11,000, or 1% to $1,871,000 during the nine month period ended
September 30, 2003, from approximately $1,859,000 recorded in the same period
of 2002.

Cost of sales for the nine-month period ended September 30, 2003 totaled
$3,485,217 as compared to $4,125,485 for the nine-month period ended September
30, 2002. Gross profit for the first nine months of 2003 decreased $708,598 to
$191,278 from $899,876 during the same period in 2002, while our gross profit
margin decreased to 5.2% from 17.9% for the same periods. Approximately 60% of
the decline in gross profit was attributable to the Energy Technology segment,
which was affected by lower sales and a slight shift to smaller, less
profitable EnergySaver units. We believe that this shift was largely caused by
one large order and is not a trend that should continue because the customers
economic returns are more favorable with the larger units. The decline in
gross margin in the Building Automation and Controls segment was to a great
extent due to a decision to defer recognition of all job related profits until
the job is completed. We review each project on a monthly basis and if as part
of this review we determine the project will incur a loss, the loss is
recognized immediately. This method is consistent with SOP 81-1. Since only
one small job was completed during the first nine months of the year, most job
related profits have been deferred to future periods. Projects in the Building
Automation and Controls segment can take anywhere from a few months to several
years to complete.

SG&A for the nine-month period ended September 30, 2003 declined $1,502,340, or
32.1% to $3,183,752, as compared to $4,686,092 for the nine-month period ended
September 30, 2002. Contributing to the decline in SG&A was a $748,000
reduction in salary expense due to reductions in headcount, a $254,000
reduction in commission expense, a $184,000 reduction in outside services
(which include fees for marketing, investor relations and recruiting services),
a $55,000 gain resulting from bad debt recovery and reductions in travel
expense, utility expenses and insurance costs.

Other expense for the nine-month period ending September 30, 2003 increased
$4,591, or 19.4% to $28,244 for the nine-month period ended September 30, 2003
from $23,653 for the same period ended September 30, 2002. Interest expense
declined $10,616 or 23.6% to $34,398 from $45,014 for the nine month period
ended September 30, 2002. The decline in interest expense was primarily due to
lower levels of borrowing and lower interest rates. Interest income for the
first nine months of 2003 declined $15,207 to $6,154 from $21,361 for the nine
months of 2002. The decline in interest income was due to lower average cash
balances and lower interest rates paid on invested cash balances.

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During the first nine months of 2003 we agreed to sell substantially all of the
assets and to transfer most of the liabilities of our Power Management segment
to a group of investors that included members of the segments management. The
sale closed on June 3, 2003, effective as of May 31, 2003. As required by SFAS
144 we have presented the operating results as well as the loss on disposal for
this segment as discontinued operations. During the nine-month period ended
September 30, 2003 the Power Management segments operating loss was $302,503
as compared to an operating loss of $585,877 for the year earlier period. We
also recorded a $764,148 loss on the disposal of the segment during the first
nine months of 2003.

On January 1, 2002, we adopted Statement of Financial Accounting Standards
(SFAS) No. 142, Goodwill and Other Intangible Assets effective for fiscal
years beginning after December 15, 2001. In accordance with SFAS No. 142, we
completed our transitional impairment testing of intangible assets during the
second quarter of fiscal 2002. Subsequent to the first quarter of fiscal 2002,
with the assistance of a third-party valuation firm, we finalized the testing
of goodwill subject to SFAS 142. The testing resulted in a write-down of
recorded goodwill in the amount of $4,103,872, which was recorded as a
cumulative effect of a change in an accounting principle.

Our dividend expense for the first nine months of 2003 decreased $316,795 to
$3,213,133 from $3,529,928 for the same period in 2002. We accrued dividends
of $1,871,384 and $1,577,239 on our Convertible Preferred Stock during the
nine-month periods ended September 30, 2003 and 2002 respectively. The
increase in the dividend accrual is due primarily to an increase in the total
shares outstanding as a result of the issuance of shares of the Series C
Convertible Preferred in June 2002, the issuance of the Series D Convertible
Preferred in June 2003, and the issuance of shares of preferred stock in
satisfaction of accrued dividends. Dividend expenses for the first nine months
of 2003 also included $386,984 of non-cash deemed dividends associated with the
issuance of the Series D Convertible Preferred stock, while the dividends for
the same period in 2002 included a non-cash deemed dividend of $1,444,697
resulting from the issuance of the Series C Convertible Preferred stock. The
dividends accrued during the first nine months of 2003 and 2002 were satisfied
through the issuance of 187,139 and 157,724 additional shares of our preferred
stock, respectively. We were required to recognize non-cash deemed dividends
of $954,765 and $507,992 during the nine-month periods ended September 30, 2003
and September 30, 2002, respectively, due to the fact that the conversion price
on these dividend shares was lower than the market price of our common stock on
the dates of issuance. The increase in this deemed dividend is primarily the
result of the increased difference in the market price of our common stock
relative to the conversion price of the dividend shares on the dates we issued
the dividend shares.

Liquidity and Capital Resources

During the twelve-month period ended December 31, 2002, we incurred a net loss
before the cumulative effect of an accounting change of $7.07 million and used
$6.88 million of cash for operating activities. Primarily as a result of our
continuing losses and lack of liquidity, our independent certified public
accountants modified their opinion on our December 31, 2002 Consolidated
Financial Statement to contain a paragraph wherein they expressed a substantial
doubt about our ability to continue as a going concern. We have taken steps to
improve our current liquidity and provide some of the growth capital necessary
to fund our plan for future growth, although these steps may not be sufficient
to sustain us until operations reach profitability. Our efforts to raise
additional capital are discussed below.

As of September 30, 2003, we had cash and cash equivalents of $2,582,969
compared to $1,555,904 on December 31, 2002. Our debt obligations as of
September 30, 2003 consisted of a $1 million convertible secured term note
(excluding the debt discount  see note 11), a mortgage of $640,000 on our
facility in Elk Grove Village Illinois, and a vehicle loan of approximately
$9,500.

Our principal cash requirements are for operating expenses, including employee
costs, the costs related to research and development, advertising costs, the
cost of outside services including those providing

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accounting, legal, engineering and consulting services, and the funding of
inventory and accounts receivable, and capital expenditures. We have financed
our operations since inception through the private placement of our common
stock, preferred stock and various secured and unsecured loans.

Net cash increased $1,027,065 during the first nine months of 2003 as compared
to decreasing $3,877,945 during the same period in 2002. Cash consumed by
operating activities declined 52.8% to $2,570,087 during the first nine months
of 2003 as compared to $5,444,577 during the same period in 2002. Cash used to
fund the net loss before changes in working capital, declined $1,074,868 or
26.5%, to $2,984,293 during the first nine months of 2003 from $4,059,161
during the same period in 2002. This improvement was primarily the result of
reductions in SG&A expense.

Changes in working capital generated $359,205 during the first nine months of
2003 and consumed $1,385,416 during the same period of 2002. Declines in
accounts receivable and inventory generated $889,859 during the first nine
months of 2003, while other current assets increased consuming $31,263. The
decline in accounts receivable resulted from improved collections and the
slowdown in sales during the third quarter of 2003. The decline in inventory
came primarily from the Energy Technology segment where we have continued to
focus on reducing the working capital tied up in inventory by doing a better
job of forecasting our raw material and finished goods requirements. Declines
in accounts payable and accrued expenses consumed cash of $463,730 during the
nine-month period ended September 30, 2003. The decline accounts payable and
accrued expenses is due in large part to a decrease in purchases in the Energy
Technology segment during the period. Increases in accounts receivable and
inventory consumed $2,677,917 during the first nine months of 2002, which was
primarily the result of increased sales, with the Energy Technology segment
responsible for most of the increase. Increases in accounts payable, accrued
expenses and deferred revenue consumed $1,265,803 during the nine month period
ended September 30, 2002. The increase in accounts payable and accrued
expenses during 2002 was again primarily the result of the increased business
activity in both EnergySaver and Building Automation and Controls businesses.
The increase in deferred revenue during 2002 resulted from product shipped
during the period for which we could not recognize revenue pending satisfaction
of all of our revenue recognition requirements.

Investing activities generated cash of $910,897 during the nine-month period
ending September 30, 2003, as compared to consuming $6,987 during the same
period in 2002. In June 2003, we sold certain assets and transferred certain
liabilities of our Power Management business, generating cash proceeds of
$929,032. This source of cash was partially offset by the purchase of
equipment during the first nine months of 2003 totaling $18,135. During the
nine months of 2002 we used $17,487 to purchase equipment and generated $10,500
through the sale of equipment we no longer required.

Financing activities generated cash of $2,686,255 and $1,573,619 during the
nine-month periods ended September 30, 2003 and 2002 respectively. During
2003, we entered into several private placement transactions in which we sold
securities including shares of our common stock, shares of our Series D
Convertible stock, preferred stock warrants and common stock warrants,
generating gross proceeds of $3,169,916, which was partially offset by issuance
costs of $301,290. We used a portion of the proceeds generated from the sale
of our Power Management segment to repay $298,000 in equipment loans and to
paydown the outstanding balance on our revolving line of credit of $500,000.
We made scheduled principal payments of $75,769 on various loans during the
first nine months of 2003 and borrowed $10,000 to finance the purchase of new
equipment. In September 2003 we closed on a new financing agreement under
which we generated gross proceeds of $1,000,000 through the issuance of a term
note and gained access to a $2,000,000 revolving credit facility, which as of
September 30, 2003 was unused. The proceeds from the term note were partially
offset by issuance cost of $304,400. Also during September 2003, in
consideration of a $47,000 prepayment, American Chartered Bank agreed to renew
and extend the mortgage on our building to February 1, 2005. During 2003
holders of certain warrants exercised their rights to purchase common stock,
generating $32,000 in cash. During 2003 we also received a payment of $798 from
a stockholder which represented the short-swing profit inadvertently

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earned when he purchased shares of our stock within six months of selling
shares, which is a violation of section 16(b) of the Securities Act of 1934.
During the first nine months of 2002, we issued a package of securities that
included our Series C Convertible Preferred Stock, which raised $2,000,000, and
we incurred $119,743 in expenses related to the issuance of this preferred
stock. We also made scheduled principal payments of $219,067 on the note to
the sellers of Marino Electric, and $87,571 on our mortgage and equipment
loans. In May 2002 we closed on a new mortgage and equipment loan with
American Chartered Bank and used the proceeds of $1,135,000 to repay our
existing mortgage and equipment loan with American National Bank.

Our working capital line of credit with American Chartered Bank expired on
September 30, 2003. We entered into new a financing arrangement with Laurus
Master Fund, Ltd. (Laurus) as of September 11, 2003, providing for a
$1,000,000 term loan (the Term Loan) and a revolving credit facility of up to
$2,000,000. The Term Loan has a term of two years and accrues interest at the
greater of prime (currently 4.00%) plus 1.75% or 6%. Interest on the Term Loan
will be due monthly in arrears and the loan will amortize at the rate of
$50,000 per month beginning February 1, 2004. We have the option of paying
scheduled interest and principal or prepaying all or a portion of the Term Loan
with shares of our common stock at the fixed conversion price of $2.12 per
share (which was equal to 103% of the recent market price of our common stock
at that time), provided that the closing price of the common stock is greater
than $2.43 per share for the 11 trading days immediately proceeding the payment
date and that the shares are registered with Securities and Exchange
Commission. We have commenced (but not yet completed) the process of
registration of shares of our common for such purposes. Laurus also has the
option to convert all or a portion of the Term Loan into shares of our common
stock at any time, subject to certain limitations, at a fixed conversion price
of $2.12 per share. The Term Loan is secured by a blanket lien on all our
assets, except for our real estate. In conjunction with the Term Loan, Laurus
was paid a fee of $50,000 and received a five year warrant to purchase up to
140,000 shares of our common stock at prices ranging from $2.44 per share to
$3.07 per share. The revolving credit facility provides for borrowings of up to
the lesser of (i) $2 million or (ii) 90% of our eligible accounts receivable.
We have not borrowed under the facility, thus it remains fully available to the
extent of our eligible receivables. As of September 30, 2003 eligible
receivables would support borrowings of approximately $300,000 under the
facility. The revolving credit facility also has a term of two years and
accrues interest at the rate of prime (currently 4.00%) plus 1.75%. We have
the option of paying interest and principal, or prepaying all or a portion of
the advances under each Secured Convertible Revolving Note with shares of our
common stock at the fixed conversion price of $2.12 per share, provided that
the closing price of our common stock is greater than $2.43 per share for the
11 trading days immediately proceeding the payment date and that the shares are
registered with Securities and Exchange Commission. (We are in the process of
registering shares of our common stock for this purpose as well.) In addition,
Laurus has the option to convert all or a portion of the advances under any
Secured Convertible Revolving Note into shares of our common stock at any time,
subject to certain limitations, at a fixed conversion price of $2.12 per share.
The revolving credit facility is also secured by a blanket lien on all of our
assets, except for our real estate. In conjunction with the revolving credit
facility, Laurus was paid a fee of $100,000 and received a five year warrant to
purchase up to 280,000 shares of our common stock at prices ranging from $2.54
per share to $3.18 per share.

Our ability to continue the development, manufacturing and the expansion of
sales of our products, including the EnergySaver, the GlobalCommander and
building automation products, will require the continued commitment of
significant funds. The actual timing and amount of our future funding
requirements will depend on many factors, including the amount and timing of
future revenues, our ability to collect our receivables in a timely manner, the
level and amount of product marketing and sales efforts, the magnitude of
research and development, and our ability to improve margins.

As a result of our continued losses and liquidity position, at the end of last
year we set the following priorities for 2003 as those we believe we must focus
on in order for the Company to continue as a going concern:

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| |  |  | Continue to increase sales of EnergySavers.This is our most
profitable product and represents the greatest potential for growth of
any product we sell. As demonstrated in 2002, we can increase our
production of EnergySavers with very little increase in our
manufacturing costs, thus as our sales volume increases, our
profitability should increase as well. Our most promising opportunity
at this time appears to be utility curtailment programs similar to the
VNPP program with Commonwealth Edison (ComEd), which we announced
earlier this year. We completed the program agreement with ComEd
during the third quarter of 2003 and began shipping product under the
program in late September. We are also in conversation with other
utilities who are considering implementing programs similar to the
ComEd program. While we made significant progress toward implementing
the ComEd program during 2003, we still have several additional tasks
to accomplish in order for this program to be successful, including the
completion of technical enhancements and working out long-term
financing arrangements, the failure to accomplish either of which could
delay or significantly reduce the size and profitability of the program
and could affect our ability to implement similar programs with other
utilities. In order to provide additional strength to the Companys
operations in response to the increase demands of the 50 MW Chicago
VNPP system, the Company has entered into a non-binding agreement with
GE Industrial Systems to provide major system components for its
EnergySaver product line, which contemplates reciprocal purchasing,
VNPP participation, joint product development and additional
joint efforts.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Evaluate the Power Management business and decide if it can be
restructured in order to make it profitable in the current business
environment and stagnant construction industry.We completed the
evaluation of this segment in early 2003 and made the decision to exit
the business. Effective May 31, 2003 we closed on the sale of
substantially all the assets of the segment and transferred certain of
the liabilities to a group of investors, including the former owners of
Switchboard Apparatus, generating proceeds of $929,032. We used
$798,000 of the proceeds to repay debt.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Build on the recent project successes at Great Lakes Controlled
Energy to make the Building Controls and Automation business grow and
become profitable.Great Lakes has been awarded new business during
2003 which should contribute to an improvement in this segments
profitability. This segment must execute effectively in order to
realize the profitability potential of this new business.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continue to aggressively manage our costs in order to conserve
cash.Through the first nine months of 2003 we have been successful in
reducing our costs as is evidenced by the 32% reduction in SG&A when
compared to the same period in 2002. While further significant
reductions in SG&A are unlikely, we must continue to monitor our costs
structure to ensure the efficient utilization of the limited capital
resources available to us.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Raise additional capital to continue to fund operations until the
business starts to generate positive cash flow, consistent with the
plan presented to shareholders in July 2001.We have succeeded in
raising approximately $3.5 million in net proceeds during 2003 through
the private placement of our equity securities and the issuance of a
convertible term note. We are continuing to explore opportunities to
raise additional capital.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We believe that if we are successful in achieving these priorities we should
have sufficient liquidity to allow us to operate until our operations turn cash
flow positive, hopefully sometime during 2004. Our projections contain certain
key assumptions which may or may not occur. If any of the key assumptions
contained in our projections are proven wrong, we may begin to experience a
liquidity shortage within the next 6 to 12 months which could force us to scale back our growth plans, or, in
the worst case, cease operations.

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If in the future we find that we need to raise additional capital (which may
require stockholder approval), our existing stockholders will likely experience
dilution of their present equity ownership position and voting rights,
depending upon the number of shares issued and the terms and conditions of the
issuance. Any new equity securities will likely have rights, preferences or
privileges senior to those of our common stock.

Cautionary Note Regarding Forward-Looking Statements

This discussion includes forward-looking statements that reflect Electric
Citys current expectations about its future results, performance, prospects
and opportunities. Electric City has tried to identify these forward-looking
statements by using words such as may, will, expects, anticipates,
believes, intends, estimates or similar expressions. These
forward-looking statements are based on information currently available to
Electric City and are subject to a number of risks, uncertainties and other
factors that could cause Electric Citys actual results, performance, prospects
or opportunities in the remainder of 2003 and beyond to differ materially from
those expressed in, or implied by, these forward-looking statements. These
risks, uncertainties and other factors include, without limitation, the
Companys limited operating history, the Companys history of operating losses,
customers acceptance of our products, the Companys use of licensed
technologies, risk of increased competition, the Companys ability to
successfully integrate acquired businesses, products and technologies, the
Companys ability to manage its growth, the Companys commercial scale
development of products and technologies to satisfy customers demands and
requirements, the need for additional financing and the terms and conditions of
any financing that is consummated, the limited trading market for the Companys
securities, the possible volatility of the Companys stock price, the
concentration of ownership, and the potential fluctuation in the Companys
operating results. For further information about these and other risks,
uncertainties and factors, please review the disclosures included under the
caption Risk Factors in Electric Citys filings with the Securities and
Exchange Commission. Except as required by Federal securities laws, Electric
City undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, changed
circumstances or any other reason, after the date of this document.







ITEM 3. Controls and Procedures



|a. |  | Evaluation of disclosure controls and procedures.
|-- |  | -------------------------------------------------



| |  | Our chief executive officer and chief financial officer, after evaluating
the effectiveness of the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the Exchange Act)) as of the end of the period
covered by the report, have concluded that our disclosure controls and
procedures were adequate and designed to ensure that material information
relating to the Company and its consolidated subsidiaries would be made
known to them by others within those entities.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b. |  | Changes in internal controls.
|-- |  | -----------------------------



| |  | There were no significant changes in our internal controls or in other
factors that could significantly affect the Companys internal controls
during the period covered by the report.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c. |  | Disclosure controls and procedures.
|-- |  | -----------------------------------



| |  | Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Securities and Exchange Commissions
rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including
our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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PART II. OTHER INFORMATION







ITEM 1. Legal Proceedings

In early October 2003, the Company notified one of its distributors that the
Company was terminating the distributorship agreement between the parties due
to certain unresolved issues (including breaches by such distributor), such
termination to be effective after 60 days. In such notice, the Company
indicated that it would be willing to enter into a new agreement with such
distributor if the disputed issues could be resolved to the mutual satisfaction
of the parties. Subsequent to giving such notice, the Company has received a
demand for arbitration from such distributor pursuant to the provisions of the
agreement, seeking, among other things, money damages in an unspecified amount
and a declaration of the meaning of certain provisions of the distributorship
agreement. The Company intends to defend the arbitration, but cannot predict
the outcome at this time. Based upon information presently available, and in
light of legal and other defenses available to the Company, management does not
consider the liability from any threatened or pending litigation (including the
foregoing arbitration) to be material to the Company.







ITEM 2. Changes In Securities



|(1) |  | On July 23, 2003, our Board of Directors approved the retirement of 1,000
shares of common stock held in our treasury, which are now deemed
authorized but unissued shares.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | On August 22, 2003, the holder of a warrant to purchase common stock
exercised the warrant, receiving 5,000 share of our common stock in
exchange of $5,000.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | We entered into a financing arrangement with Laurus Master Fund, Ltd.
(Laurus) as of September 11, 2003, providing for a $1,000,000 term loan
(the Term Loan) and a revolving credit facility of up to $2,000,000.
The principal documents involved are a Securities Purchase Agreement, two
Security Agreements, a Convertible Term Note, two warrants to purchase
common stock of the Company (one relating to the revolving loan facility
and one relating to the term loan), two registration rights agreements
(one with respect to the revolving loan facility and one with respect to
the term loan), and an agreed form of Secured Convertible Revolving Note.
All of the documents are dated September 11, 2003, except that no Secured
Convertible Revolving Note has been executed or delivered yet. When we
desire to access the revolving credit facility, we will execute and
deliver to Laurus one or more Secured Convertible Revolving Notes (which,
in the aggregate, will not exceed $2,000,000).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | The Term Loan has a term of two years and accrues interest at the greater
of prime (currently 4.005) plus 1.75% or 6%. Interest on the Term Loan
will be due monthly in arrears and the loan will amortize at the rate of
$50,000 per month beginning February 1, 2004. We have the option of
paying scheduled interest and principal, or prepaying all or a portion of
the Term Loan with shares of our common stock at the fixed conversion
price of $2.12 per share, provided that the closing price of the common
stock is greater than $2.43 per share for the 11 trading days immediately
proceeding the payment date and that the shares are registered with
Securities and Exchange Commission. Laurus also has the option to
convert all or a portion of the Term Loan into shares of our common stock
at any time, subject to certain limitations, at a fixed conversion price
of $2.12 per share. The Term Loan is secured by a blanket lien on all
our assets, except for our real estate. In conjunction with the Term
Loan, Laurus was paid a fee of $50,000 and received a five year warrant
to purchase up to 140,000 shares of our common stock at prices ranging
from $2.44 per share to $3.07 per share. All stock conversion prices and
exercise prices are subject to adjustment for stock splits, stock
dividends or similar events.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  | The revolving credit facility provides for borrowings of up to the lesser
of (i) $2 million or (ii) 90% of our eligible accounts receivable. We
did not borrow under the facility at closing. The revolving credit
facility also has a term of two years and accrues interest at the rate of
prime plus 1.75%. We have the option of paying interest and principal,
or prepaying all or a portion of the advances under each Secured
Convertible Revolving Note with shares of our common stock at the fixed
conversion price of $2.12 per share, provided that the closing price of
our common stock is greater than $2.43 per share for the 11 trading days
immediately proceeding the payment date and that the shares are
registered with Securities and Exchange Commission. In addition, Laurus
has the option to convert all or a portion of the advances under any
Secured Convertible Revolving Note into shares of our common stock at any
time, subject to certain limitations, at a fixed conversion price of
$2.12 per share. The revolving credit facility is also secured by a
blanket lien on all of our assets, except for our real estate. In
conjunction with the revolving credit facility, Laurus was paid a fee of
$100,000 and received a five year warrant to purchase up to 280,000
shares of our common stock at prices ranging from $2.54 per share to
$3.18 per share. All stock conversion prices and exercise prices are
subject to adjustment for stock splits, stock dividends or similar
events.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | On September 24, 2003, the Board of Directors declared dividends payable
on our Series A, Series C and Series D Convertible Preferred Stock for the
calendar quarter ending September 30, 2003 to shareholders of record of
our Series A, Series C and Series D Convertible Preferred Stock as of
September 30, 2003. The dividends were paid on September 30, 2003 in
additional shares of preferred stock to the holders as follows: 11,988
shares to Newcourt Capital USA, Inc., 11,484 shares to Morgan Stanley Dean
Witter Equity Funding, Inc., 604 shares to Originators Investment Plan,
L.P., 8,775 shares to Leaf Mountain Company, LLC, 15,335 shares to Mr.
Richard Kiphart, 11,173 shares to Cinergy Ventures II, LLC, 5,586 shares
to SF Capital Partners Ltd., 698 shares to the John Thomas Hurvis
Revocable Trust and 698 shares to Mr. David Asplund. Each share of Series
A, Series C and Series D Convertible Preferred Stock is convertible into
10 shares of our common stock.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) |  | On September 23, 2003, we issued a warrant to purchase 100,000 shares of
our common stock to a consultant as compensation for services received in
a private transaction not involving any solicitation or offering of such
warrant to anyone else. The warrant has a term of three years and an
exercise price of $2.00 per share. This warrant was valued at $100,000
using a modified Black-Sholes option pricing model.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

No underwriters were involved in any of the transactions described above. All
of the securities issued in the foregoing transactions were issued by us in
reliance upon the exemption from registration available under Section 4(2) of
the Securities Act, including Regulation D promulgated thereunder, in that the
transactions involved the issuance and sale of our securities to financially
sophisticated individuals or entities that were aware of our activities and
business and financial condition and took the securities for investment
purposes and understood the ramifications of their actions. Certain of the
purchasers also represented that they were accredited investors as defined in
Regulation D and/or were acquiring such securities for investment for their own
account and not for distribution. All certificates representing the common
stock so issued have a legend imprinted on them stating that the shares have
not been registered under the Securities Act and cannot be transferred until
properly registered under the Securities Act or an exemption applies.







ITEM 4. Submission of Matters to a Vote of Security Holders

On September 24, 2003, we held our annual meeting of stockholders for the
fiscal year ended December 31, 2002. At the annual meeting, six nominees to our
Board of Directors were elected to hold office for a one year term ending at
our 2003 annual meeting of stockholders or until their respective successors
were

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duly elected and qualified. In addition, our stockholders were asked to ratify
the appointment of our independent auditors. The number of directors has been
set at 12 by resolution of the Board. As of the record date of July 22, 2003,
there were 34,148,022 shares of our common stock outstanding.

Pursuant to a Stockholders Agreement between the Company and the holders of our
Series A Convertible Preferred Stock (the Series A Preferred Stock) and the
Certificate of Designations governing the Series A Preferred Stock, the holders
have the right to elect (out of twelve directors) up to (i) four directors for
so long as at least 800,000 shares of Series A Preferred Stock remained issued
and outstanding, (ii) three directors for so long as at least 600,000 but less
than 800,000 shares of Series A Preferred Stock remained issued and
outstanding, (iii) two directors for so long as at least 400,000 but less than
600,000 shares of Series A Preferred Stock remained issued and outstanding and
(iv) one director for so long as at least 200,000 but less than 400,000 shares
of Series A Preferred Stock remained issued and outstanding. In addition,
pursuant to the Stockholders Agreement, the holders of our Series A Preferred
Stock, Series C Convertible Preferred Stock (the Series C Preferred Stock)
and Series D Convertible Preferred Stock (the Series D Preferred Stock) are
entitled to vote with the holders of our common stock on an as-converted basis
on all matters that our holders of common stock are entitled to vote, except
for the election of directors.

As of the record date, 365,990 shares of our common stock were held by the
holders of our Series A Preferred Stock, 30,082 shares were held by the holder
of our Series C Preferred Stock and 22,562 shares were held by the holder of
our Series D Preferred Stock. In addition, as of the record date, there were
2,281,109 shares of Series A Preferred Stock, 222,356 shares of Series C
Preferred Stock and 150,166 shares of Series D Preferred Stock outstanding, of
which each share of preferred stock is convertible into ten shares of our
common stock. As of the record date, the number of shares of our common stock
eligible to be voted for the election of directors was as follows:

Outstanding Common Stock
    
    
    34,148,022Common Stock held by the holders of our
Series A Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock
    
    
    (418,634
    )Shares eligible to be cast for election of directors
    
    
    33,729,388


Of our common stock eligible to be cast for the election of directors,
25,403,384 shares were represented in person or by proxy at our annual meeting.
The directors elected included Messrs. David R. Asplund, Robert J. Manning,
Kevin P. McEneely, John P. Mitola, Gerald A. Pientka, and Michael S. Stelter,
who were all of the nominees, with results for each director as follows:

Director
    
    For
    
    WithheldDavid R. Asplund
    
    
    24,494,819
    
    
    
    908,565Robert J. Manning
    
    
    24,490,769
    
    
    
    912,615Kevin P. McEneely
    
    
    24,499,369
    
    
    
    904,015John P. Mitola
    
    
    24,534,043
    
    
    
    869,341Gerald A. Pientka
    
    
    24,531,138
    
    
    
    872,246Michael S. Stelter
    
    
    24,529,138
    
    
    
    874,246


Other directors whose terms in office continue are Frederic F. Brace, Kevin J.
Kushman and Robert D. Wagner, Jr., all of whom were appointed by the holders of
our Series A Preferred Stock.

As of the record date, the number of shares of our common stock and
as-converted preferred stock eligible to be cast on all other matters was as
follows:

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Outstanding Common Stock
    
    
    34,148,022Series A Preferred Stock on an as-
converted basis
    
    
    22,811,090Series C Preferred Stock on an as-
converted basis
    
    
    2,223,560Series D Preferred Stock on an as-
converted basis
    
    
    1,501,660Shares eligible to be cast for all other
matters
    
    
    60,684,332


Other matters that were submitted to our stockholders for ratification or
approval included the following:

Our Board of Directors appointed BDO Seidman, LLP, independent public
accountants, as auditors of our financial statements for the year ending
December 31, 2003, and to perform other audit and accounting activities as we
or our Board of Directors may request from time to time. At the annual meeting,
we asked our stockholders to ratify the appointment of BDO Seidman, LLP as our
auditors. Of 40,724,027 shares represented in person or by proxy at our annual
meeting, 39,633,388 shares were voted in favor of ratification, 480,952 shares
were voted against ratification and 9,994 shares abstained from voting.







ITEM 6.
    
    Exhibits And Reports On Form 8-K




| | (a) |  | Exhibits
| | --- |  | --------

10.84
    
    
    Amended And Restated Mortgage,
Assignment Of Leases and Rents, And Security Agreement
dated September 30, 2003 by Electric City Corp. and
American Chartered Bank.10.85
    
    
    Mortgage Note made and entered into
on the 30th day of September 2003, by and among American
Chartered Bank and Electric City Corp., and Great Lakes
Controlled Energy Corporation.10.86
    
    
    Assignment of Leases and Rents by
Electric City Corp. in favor of American Chartered Bank,
dated September 30, 2003.31.1
    
    
    Certificate of Chief Executive
Officer pursuant to Securities Exchange Act Rules
13a-15(e) and 15d-15(e) as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certificate of Chief Financial
Officer pursuant to Securities Exchange Act Rules
13a-15(e) and 15d-15(e) as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification of the Chief Executive
Officer of the Corporation Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code
Pursuant to Section 906 of the Sarbanes-Oxley Act of
200232.2
    
    
    Certification of the Chief Financial
Officer of the Corporation Pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States Code
Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002


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| | (b) |  | On August 15, 2003, the Company filed a report on
Form 8-K announcing the financial results of the quarter ended
June 30, 2003
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------



| | (c) |  | On September 3, 2003, the Company filed a report
on Form 8-K announcing that it had begun to mail its annual
meeting material and releasing a copy of its letter to
shareholders.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (d) |  | On September 16, 2003, the Company filed a report
on Form 8-K announcing that it had entered into a financing
arrangement with Laurus Master Fund as of September 11, 2003,
providing for a $1,000,000 term loan and a revolving credit
facility of up to $2,000,000.
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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SIGNATURES

In accordance with the requirements of the Securities and Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

ELECTRIC CITY CORP.:Dated: November 13, 2003
    
    By:
    
    /s/ John MitolaJohn MitolaChief Executive Officer (principalexecutive officer)Dated: November 13, 2003
    
    By:
    
    /s/ Jeffrey MistarzJeffrey MistarzChief Financial Officer (principalfinancial and accounting officer)


36